{"id":175495,"date":"2024-07-22T13:11:58","date_gmt":"2024-07-22T19:11:58","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=175495"},"modified":"2024-07-23T08:47:39","modified_gmt":"2024-07-23T14:47:39","slug":"1031-investor-journal-seven","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-seven","title":{"rendered":"Month Seven of Our 1031 Exchange: We&#8217;re Investing in&#8230; Restaurants?"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">After months of saying \u201calmost,\u201d we are <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.compass.com\/listing\/197-spencer-street-unit-3b-brooklyn-ny-11205\/1581379408475747793\/?utm_medium=email&amp;utm_source=transactional&amp;utm_term=collections_share_action_email_listings_email&amp;utm_content=197%20Spencer%20Street,%20Unit%203B&amp;utm_campaign=7\/7\/17&amp;agent_id=5900eb30fcd4b75cedc6b169&amp;&amp;email_tracking=e30=&amp;deliverable_id=664d12654b217f0008f34f66&amp;deliverable_type=share_action_email_listings_v2&amp;deliverable_channel=email&amp;email_tracking=eyJkZWxpdmVyYWJsZUlkIjoiNjY0ZDEyNjU0YjIxN2YwMDA4ZjM0ZjY2IiwiZGVsaXZlcmFibGVUeXBlIjo3MSwiZGVsaXZlcmFibGVDaGFubmVsIjoxLCJyZWNpcGllbnRJbmRleCI6MSwic2VuZGVySWQiOiI1OTAwZWIzMGZjZDRiNzVjZWRjNmIxNjkifQ==\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">officially under contract<\/span><\/a><span data-preserver-spaces=\"true\"> on our Brooklyn, New York condo. We got our <\/span><span data-preserver-spaces=\"true\">full<\/span><span data-preserver-spaces=\"true\"> asking price ($975,000), plus a lovely down payment, within the first two weeks of being on the market. (Thank you, NYC real estate!)<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Of course, it <\/span><span data-preserver-spaces=\"true\">ain\u2019t<\/span><span data-preserver-spaces=\"true\"> over until we get our fat check, but we are thrilled to have made it this far, and for the first time in months, the ball is kind of in the buyer\u2019s court to get appraisals and financing\u2014fingers crossed we are all systems go. <\/span><span data-preserver-spaces=\"true\">(<\/span><span data-preserver-spaces=\"true\">And yes,<\/span><span data-preserver-spaces=\"true\"> we know it could still go south at this point, but we\u2019re eternally optimistic!)<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This is, of course, our first step in a somewhat complicated <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-exchange\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">1031 exchange<\/span><\/a><span data-preserver-spaces=\"true\">\u2014where we are <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">selling the Brooklyn condo we\u2019ve owned for 20 years<\/span><\/a><span data-preserver-spaces=\"true\">, making a very large profit (we bought it for $375,000 in 2004), and then rolling over the entirety of that sales price into an investment property, which we hope will net us a big monthly check until the end of time.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With the first part of our exchange underway, we are now reasonably free to focus entirely on the buy side. And we have been busy. As you may remember, we took a <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-six\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">quick trip to the Dallas suburbs<\/span><\/a><span data-preserver-spaces=\"true\"> to look at (and ultimately pass on) a <\/span><span data-preserver-spaces=\"true\">large<\/span><span data-preserver-spaces=\"true\"> 13-unit apartment building with <\/span><span data-preserver-spaces=\"true\">a ton of<\/span><span data-preserver-spaces=\"true\"> issues we decided we didn\u2019t want to deal with.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Slightly influenced <\/span><span data-preserver-spaces=\"true\">by that<\/span><span data-preserver-spaces=\"true\">, we turned to the other end of the resource-intensive spectrum and focused on <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/triple-net-leases-commercial-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">hands-off <\/span><span data-preserver-spaces=\"true\">NNN<\/span><span data-preserver-spaces=\"true\"> leases<\/span><\/a><span data-preserver-spaces=\"true\">. Here are some <\/span><span data-preserver-spaces=\"true\">of the<\/span><span data-preserver-spaces=\"true\"> deals we reviewed the last couple of weeks, how we analyzed them, and why we ultimately passed (or didn\u2019t?).<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">1. An Auto Repair Business in the Northeast<\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Price: <\/span><\/strong><span data-preserver-spaces=\"true\">$1.08 million<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Cap rate:<\/span><\/strong><span data-preserver-spaces=\"true\"> 7.00%<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">NOI:<\/span><\/strong><span data-preserver-spaces=\"true\"> $75,600<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">10<\/span><span data-preserver-spaces=\"true\"> years on primary lease term, with 5% rent increases every<\/span><span data-preserver-spaces=\"true\"> 5 <\/span><span data-preserver-spaces=\"true\">years<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Four (five-year) renewal options<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Corporate guarantee<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">NN lease: <\/span><\/strong><span data-preserver-spaces=\"true\">Roof, foundation, and HVAC landlord responsibility<\/span><\/li>\n<\/ul>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Pass: <\/span><\/strong><span data-preserver-spaces=\"true\">This is a <\/span><span data-preserver-spaces=\"true\">double net<\/span><span data-preserver-spaces=\"true\"> lease (rather than <\/span><span data-preserver-spaces=\"true\">triple net), where<\/span><span data-preserver-spaces=\"true\"> too many of the big expenses <\/span><span data-preserver-spaces=\"true\">would be our responsibility<\/span><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">2. A Popular Restaurant Chain in the Deep South<\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Price:<\/span><\/strong><span data-preserver-spaces=\"true\"> $1.4 million<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Cap rate: <\/span><\/strong><span data-preserver-spaces=\"true\">6.25%<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">NOI:<\/span><\/strong><span data-preserver-spaces=\"true\"> $89,154<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">2018 construction<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">15-year absolute <\/span><span data-preserver-spaces=\"true\">NNN<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">1.5% annual rent increases<\/span><\/li>\n<\/ul>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Pass: <\/span><\/strong><span data-preserver-spaces=\"true\">Too expensive. After loans, we\u2019d only net $3,400 a month.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">3. Another Popular Restaurant Chain in the Deep South With 8 Years Left on the Lease<\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Price:<\/span><\/strong><span data-preserver-spaces=\"true\"> $1.2 million<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Cap rate: <\/span><\/strong><span data-preserver-spaces=\"true\">7.25%<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">NOI: <\/span><\/strong><span data-preserver-spaces=\"true\">$90,000<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Eight years left on lease, 10% increases every five years<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Absolute NNN\u2014zero landlord responsibilities<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Popular restaurant chain<\/span><\/li>\n<\/ul>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Undecided:<\/span><\/strong> <span data-preserver-spaces=\"true\">Price is right, and it nets about $4,800 after debt service, which is good. But we were nervous about the eight years left on the lease. The end of the NNN lease is, of course, where it starts to get very expensive since you can be vacant for a long time. Maybe that\u2019s why the cap rate is higher. We\u2019re having some more conversations with our broker about this next week.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">What do you think of the deals we reviewed this month? Did we make the right calls? What would you be looking for, and what would you run from?&nbsp;<\/span><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Our 1031 Journey So Far:<\/span><\/strong><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">January: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Selling our Condo, the Beginning<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">February:<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-two\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> Getting the sell side situated<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">March: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-three\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Is a 1031 Exchange <\/span><span data-preserver-spaces=\"true\">Really<\/span><span data-preserver-spaces=\"true\"> Worth It?<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">April: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-four\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Finding the Best Deal in the Haystack<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">May: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-five\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Final Stretch on the Sell Side<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">June: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-six\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Our Condo Is on the Market!<\/span><\/a><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">This 1031 diary will be a monthly series through 2024, chronicling our journey to a (hopefully) successful and profitable 1031 exchange, kicking off in May. We\u2019ll share everything\u2014all the numbers, the analysis, the good decisions, what we wish we\u2019d done differently, the big mistakes (hopefully not many), and everything in between.&nbsp;<\/span><\/em><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">Have questions? Got advice? What are we missing? Share in the comments below!<\/span><\/em><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_3ea778528fa338b05f55612886360384\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_5ebb63a80e5bde152055d0427c1fd8e6\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get a Better Tax Strategy Now<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Connect with<strong><em> real estate<\/em><\/strong><em> <\/em><strong><em>investor-friendly <\/em>tax pros <\/strong>who create thriving, tax-efficient portfolios.<\/p>\n\n\n\n<div id=button-custom-event-block_f1e966bc7521cbb7b0dcd00cc352089d class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/tax-and-financial-services\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Agent Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-seven&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find a Tax Pro<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/04\/Marketplace-Blog-Blocks-FinServ_Tax.png\" alt=\"investor-friendly CPAs, tax professionals, and financial planners\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  ","protected":false},"excerpt":{"rendered":"<p>With $975,000 to play with, we&#8217;re looking at options outside of residential real estate.<\/p>\n","protected":false},"author":613680,"featured_media":175513,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[7359],"tags":[],"class_list":["post-175495","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1031-exchanges"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175495","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613680"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=175495"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175495\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/175513"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=175495"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=175495"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=175495"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}